T-Mobile's Q2 marked 'first miss on postpaid phone volumes in recent history': Deutsche Bank

T-Mobile CEO John Legere

T-Mobile’s 786,000 postpaid phone net additions in the second quarter actually fell short of expectations, according to fresh analysis from Deutsche Bank’s Matthew Niknam.

The nation’s third-largest carrier released its latest quarterly results nearly two months ago, posting 786,000 postpaid phone additions to exceed most analysts’ estimates. But more than 250,000 of those postpaid additions weren’t truly new customers, according to Deutsche Bank estimates; instead, they were customers who added a phone number to devices already in service.

Those users did so through T-Mobile’s Digits service, which launched in late May and enables users to use multiple numbers on a single device. Customers can extend their number to tablets, wearables and computers, enabling them to call or text between a variety of gadgets with a single number.

But including those users as postpaid additions paints an inaccurate portrait of T-Mobile’s subscriber gains, Nikman suggested Friday morning in a note to investors.

“Adjusting out Digits, we estimate 2Q postpaid phone net adds missed Deutsche Bank/Wall Street expectations; this would mark T-Mobile’s first miss on postpaid phone volumes in recent history,” Niknam wrote. “If we assume Digits adds of +250,000, this would imply pure postpaid phone net adds of +536,000. Importantly, this would be below Deutsche Bank/Wall Street (estimates) of +611,000/+590,000. … T-Mobile expects Digits to contribute less than ~100,00 net adds in the third quarter, though the company noted it will retroactively separate these adds from its postpaid phone base.”

T-Mobile declined to comment on the report.

The carrier’s incredible momentum over the last two to three years is undeniable, of course, and Apple’s new phones provide an opportunity for T-Mobile to continue to gain market share. But Niknam said the lack of aggressive promotions for Apple’s handset refresh—thus far, at least—could be more beneficial to larger carriers than it is to T-Mobile.

“Relative to last year’s “free iPhone 7” promos, initial iPhone 8/8+/X promotions appear more subdued and rational,” he wrote. “While this should be a tailwind for each carrier’s margins, we believe AT&T and Verizon are likely to see greater relative benefit given their significant share (better retention and margins). In contrast, a relatively lighter ‘switching season’ due to scaled-back promotions could further moderate market expectations for T-Mobile’s volume growth (in a market where each of its peers are now competing via unlimited plans). It is worth noting that T-Mobile has significantly ramped network quality and added more value in its rate plans, so the company may be less driven to compete solely on handset discounts.”